Fiscal Multipliers and the State of the Economy
32 Pages Posted: 18 Jan 2013
Date Written: December 2012
Only a few empirical studies have analyzed the relationship between fiscal multipliers and the underlying state of the economy. This paper investigates this link on a country-by-country basis for the G7 economies (excluding Italy). Our results show that fiscal multipliers differ across countries, calling for a tailored use of fiscal policy. Moreover, the position in the business cycle affects the impact of fiscal policy on output: on average, government spending, and revenue multipliers tend to be larger in downturns than in expansions. This asymmetry has implications for the choice between an upfront fiscal adjustment versus a more gradual approach.
Keywords: Fiscal policy, Production growth, Business cycles, Group of seven, Cross country analysis, fiscal multipliers, business cycle, nonlinear analysis, fiscal multipliers., fiscal policy, fiscal adjustment, government spending, fiscal consolidation, fiscal shock, fiscal contraction, fiscal data, government expenditure, fiscal multiplier, fiscal policies, fiscal spending, fiscal shocks, fiscal expansion, public debt, fiscal consolidations, fiscal stimulus, tax revenue, tax cuts, fiscal contractions, tax changes, tax policy, fiscal deficit, expansionary fiscal contractions, public expenditures, tax rates, fiscal policy decisions, business cycle, taxation, discretionary fiscal policy, fiscal transpa
JEL Classification: E32, E62, C54
Suggested Citation: Suggested Citation